STATE OF NEW YORK INSURANCE DEPARTMENT

REPORT ON EXAMINATION

OF THE

GERBER LIFE INSURANCE COMPANY

AS OF

DECEMBER 31, 2001

DATE OF REPORT: JANUARY 10, 2003

EXAMINER: JO’CATENA HARGROVE

 TABLE OF CONTENTS

ITEM PAGE NO.

1. Executive summary 2
2. Scope of examination 3
3. Description of Company 4
A. History 4
B. Holding company 4
C. Management 5
D. Territory and plan of operation 8
E. Reinsurance 8
4. Significant operating results 9
5. Financial statements 11
A. Assets, liabilities, capital, surplus and other funds 11
B. Condensed summary of operations 13
C. Capital and surplus account 14
6. Market conduct activities 15
A. Advertising and sales activities 15
B. Underwriting and policy forms 15
C. Treatment of policyholders 16
D. Response to Supplement No. 1 to Department Circular Letter No. 19 17
(2000)
7. Summary and conclusions 18
 STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

January 10, 2003

Honorable Gregory V. Serio

Superintendent of Insurance
Albany, New York 12257

Sir:

In accordance with instructions contained in Appointment No. 21911, dated July 3, 2002
and annexed hereto, an examination has been made into the condition and affairs of Gerber Life
Insurance Company, hereinafter referred to as “the Company,” at its home office located at 1311
Mamaroneck Avenue, White Plains, New York 10605.
Wherever “Department” appears in this report, it refers to the State of New York
Insurance Department.
The report indicating the results of this examination is respectfully submitted.

http://www.ins.state.ny.us
 2

1. EXECUTIVE SUMMARY

The examiner’s review of a sample of transactions did not reveal any differences which
materially affected the Company’s financial condition as presented in its financial statements
contained in the December 31, 2001 filed annual statement. (See item 5 of this report)
The Company violated Section 3201(b)(1) of the New York Insurance Law by using
unapproved policy forms. (See item 6B of this report)
The Company violated Section 3207(c) of the New York Insurance Law by issuing
policies to minors in excess of the limits allowed by Law. (See item 6B of this report)
The Company violated Section 3207(e)(1) of the New York Insurance Law by paying
claims in excess of the limits allowed by Law. (See item 6C of this report)
 3

2. SCOPE OF EXAMINATION

The prior examination was conducted as of December 31, 1998. This examination covers
the period from January 1, 1999 through December 31, 2001. As necessary, the examiner
reviewed transactions occurring subsequent to December 31, 2001 but prior to the date of this
report (i.e., the completion date of the examination).
The examination comprised a verification of assets and liabilities as of December 31,
2001 to determine whether the Company’s 2001 filed annual statement fairly presents its
financial condition. The examiner reviewed the Company’s income and disbursements
necessary to accomplish such verification and utilized the National Association of Insurance
Commissioners’ Examiners Handbook or such other examination procedures, as deemed
appropriate, in such review and in the review or audit of the following matters:
Company history
Management and control
Corporate records
Fidelity bond and other insurance
Officers' and employees' welfare and pension plans
Territory and plan of operation
Market conduct activities
Growth of Company
Business in force by states
Mortality and loss experience
Reinsurance
Accounts and records
Financial statements
The examiner reviewed the prior report on examination which did not contain any
violations, recommendations or comments.
This report on examination is confined to financial statements and comments on those
matters which involve departure from laws, regulations or rules, or which require explanation or
description.
 4

3. DESCRIPTION OF COMPANY

A. History
The Company was incorporated as a stock life insurance company under the laws of New
York on December 22, 1967, was licensed and commenced business on September 20, 1968.
Initial resources of $4,970,250, consisting of common capital stock of $1,000,000 and paid in
and contributed surplus of $3,970,250, were provided through the sale of 100,000 shares of
common stock (with a par value of $10 each) for $49.7025 per share. Changes in the capital and
surplus of the Company since incorporation resulted in capital and paid in and contributed
surplus of $2,504,250 and $16,216,00 respectively as of December 31, 2001.
In August 1994, Gerber Holding Company was formed by Sandoz Corporation in order
to purchase Gerber Products Company.
In March 1996, Sandoz Corporation and Ciba-Geigy, a large Swiss pharmaceutical
company merged. The merger created Novartis Corporation, the second largest pharmaceutical
company in the world. Novartis Corporation then became the new ultimate parent of the
Company.

B. Holding Company
The Company is a wholly owned subsidiary of Gerber Products Company (“Gerber
Products”), a Michigan corporation and a leading producer of baby foods. The Company’s
ultimate parent is Novartis Corporation, a Switzerland pharmaceutical company.
An organization chart reflecting the relationship between the Company and significant
entities in its holding company system as of December 31, 2001 follows:

NOVARTIS CORPORATION

GERBER HOLDING COMPANY

GERBER PRODUCTS COMPANY

GERBER LIFE INSURANCE COMPANY GERBER FAMILY SERVICES, INC.

 5

The Company had four service agreements in effect as of December 31, 2001.
1. The Company has a service agreement with its parent, whereby the Company receives
supportive facilities and services in the administrative, advertising and computer areas.
2. The Company has a general agency agreement with Gerber Family Services, Inc.
(“GFS”).
3. The Company has a service agreement with GFS, whereby the Company provides
supportive facilities, services and materials in the administrative and advertising areas to GFS.
4. The Company also has a service agreement with GFS whereby the Company purchases
surplus advertising materials at cost from GFS.

C. Management
The Company’s by-laws provide that the board of directors shall be comprised of not less
than nine and not more than 15 directors. The number of directors shall be increased to not less
than 13 within one year following the end of the calendar year in which the Company’s admitted
assets exceed $1.5 billion. Directors are elected for a period of one year at the annual meeting of
the stockholders held in April of each year. As of December 31, 2001, the board of directors
consisted of ten members. Meetings of the board are held in January, April, July and October.

The ten board members and their principal business affiliation, as of December 31, 2001,
were as follows:
Year First
Name and Residence Principal Business Affiliation Elected

Victor J. Fennon* Retired 1997

Bronxville, NY

Kurt P. Furger Global Chief Financial Officer 1998

Berkeley Heights, NJ Novartis Consumer Health Division
 6

Year First
Name and Residence Principal Business Affiliation Elected

John E. Gould* Senior Partner 2000

Scarsdale, NY Thompson Hine

Ronald J. Masiero Chairman of the Board, President and Chief 1985

Huntington, CT Executive Officer
Gerber Life Insurance Company

William R. Morrissey* President 1998

Hartsdale, NY WRM Consulting

Donna H. Myers* President 1974

Holmdel, NJ DHM Group, Inc.

Frank P. Palantoni Global Chief Executive Officer 1999

South Salem, NY Novartis Consumer Health Division

Alfred A. Piergallini Chief Executive Officer 1990

Jersey City, NJ Novartis Consumer Health Worldwide

Steven M. Tobin Senior Vice President and Treasurer 1991

Hartsdale, NY Gerber Life Insurance Company

Ellen B. Yuracko Senior Vice President, Marketing and Secretary 1988

Hartsdale, NY Gerber Life Insurance Company

* Not affiliated with the Company or any other company in the holding company system

In January 2002, Alfred A. Piergallini retired from the board. In January 2003, Kurt P.
Furger and Ellen B. Yuracko resigned from the board, Ronald J. Masiero resigned as President
and Chairman but will remain a member of the board. Also in January of 2003 Frank Palantoni
was elected Chairman of the board, Wesley Protheroe, Andre Cadieux and Keith O’Reilly were
elected to serve on the board.
The examiner’s review of the minutes of the meetings of the board of directors and its
committees indicated that meetings were well attended and that each director attended a majority
of meetings.
 7

The following is a listing of the principal officers of the Company as of December 31,
2001:
Name Title

Ronald J. Masiero Chairman of the Board, President and Chief Executive

Officer
Jacquelin Howard Senior Vice President – Operations
Steven M. Tobin Senior Vice President and Treasurer
Ellen B. Yuracko Senior Vice President – Marketing and Secretary
Merle J. Hanson Vice President – Information Systems
Robert J. Lodewick, Jr. * Vice President – General Counsel
Peter J. Mendelson Vice President – Direct Response Marketing
Leslie A. Napoleon Vice President – Product Actuary
Keith M. O’Reilly Vice President – Corporate Planning
Warren H. Silberstein Vice President – Financial Actuary
Rosemary S. Ginter Assistant Secretary

In January 2003 Ronald J. Masiero and Ellen B. Yuracko retired from the Company.
Effective November 1, 2002 Wesley Protheroe was elected President of the Company.

* Designated consumer services officer per Section 216.4(c) of Department Regulation No. 64
 8

D. Territory and Plan of Operation

The Company is authorized to write life insurance, annuities and accident and health
insurance as defined in paragraphs 1, 2 and 3 of Section 1113(a) of the New York Insurance
Law.
The Company is licensed to transact business in 50 states, the District of Columbia,
Puerto Rico, and Canada. In 2001, 18% of life premiums and 11% of accident and health
premiums were received from New York. No other state is responsible for 10% or more of the
Company’s premium. Policies are written on a non-participating basis.
The Company sells its life products primarily through mass marketing and sells its group
life and accident and health products primarily through its general agency force.
The Company sells a substantial amount of life insurance by direct mail with a first
month’s premium of $1. The applicant pays the low first month’s premium, receives a policy
and then decides whether to continue coverage. Approximately one third of this business lapses
after the first month.

E. Reinsurance
As of December 31, 2001, the Company had reinsurance treaties in effect with over 70
companies, of which 12 were authorized or accredited. The Company’s life and accident and
health businesses are reinsured on a coinsurance, quota share, and yearly renewable term basis.
Reinsurance is provided on an automatic basis.
The maximum retention limit for individual life contracts is $30,000 per life on standard
rated cases, $10,000 per life on substandard risk and $15,000 on accidental death benefits. On its
guaranteed issue individual life business, the Company generally reinsures 75% of policy
amounts in excess of $5,000. The total face amount of life insurance ceded, as of December 31,
2001, was $758,128,954 which represents 3.9% of the total face amount of life insurance in
force. Reserve credit taken for reinsurance ceded to unauthorized companies and reinsurance
recoverables from unauthorized companies, totaling $31,504,350, was supported by letters of
credit.
The total face amount of life insurance assumed, as of December 31, 2001, was
$1,218,876,673. This represents 6% of the total life insurance in force.
 9

4. SIGNIFICANT OPERATING RESULTS

Indicated below is significant information concerning the operations of the Company

during the period under examination as extracted from its filed annual statements. Failure of
items to add to the totals shown in any table in this report is due to rounding.
The following table indicates the Company’s financial growth during the period under
review:
December 31, December 31, Increase
1998 2001 (Decrease)

Admitted assets $349,640,499 $580,065,418 $230,424,919

Liabilities $292,822,322 $488,490,798 $195,668,476

Common capital stock $ 2,500,000 $ 2,500,000 $ 0

Preferred capital stock 4,250 4,250 0
Gross paid in and contributed surplus 16,216,000 16,216,000 0
Group life contingency reserve 4,428,371 5,677,707 1,249,336
Unassigned funds (surplus) 33,669,556 67,176,663 33,507,107
Total capital and surplus $ 56,818,177 $ 91,574,620 $ 34,756,443

Total liabilities, capital and surplus $349,640,499 $580,065,418 $230,424,919

The Company’s invested assets as of December 31, 2001 were mainly comprised of
bonds (90.2%) and cash and short-term investments (5.3%).
The Company’s entire bond portfolio, as of December 31, 2001, was comprised of
investment grade obligations.
The ordinary lapse ratio for each of the examination years was 15.5% in 2001, 16.3% in
2000 and 18.0% in 1999.
 10

The following is the net gain (loss) from operations by line of business after federal
income taxes but before realized capital gains (losses) reported for each of the years under
examination in the Company’s filed annual statements:
1999 2000 2001

Ordinary life insurance $11,127,707 $11,571,023 $11,133,824

Group life $ 1,320,041 $ 1,413,874 $ 1,188,071

Accident and health:

Group $ 1,580,052 $ 1,309,558 $ 2,623,866
Other (1,292,794) (593,117) (339,863)

Total accident and health $ 287,258 $ 716,441 $ 2,284,003

Total $12,735,006 $13,701,338 $14,605,898

The increase in the group accident and health business in 2001 is due to the Company’s
decision to decrease the amount of reinsurance ceded and retain a greater portion of this
profitable line of business.
The accident and health other line is a closed block of Medicare Supplement business.
 11

5. FINANCIAL STATEMENTS

The following statements show the assets, liabilities, capital, surplus and other funds as of
December 31, 2001, as contained in the Company’s 2001 filed annual statement, a condensed
summary of operations and a reconciliation of the capital and surplus account for each of the
years under review. The examiner’s review of a sample of transactions did not reveal any
differences which materially affected the Company’s financial condition as presented in its
financial statements contained in the December 31, 2001 filed annual statement.

A. ASSETS, LIABILITIES, CAPITAL, SURPLUS AND OTHER FUNDS

AS OF DECEMBER 31, 2001

Admitted Assets

Bonds $464,792,805
Stocks:
Common stocks 13,823,624
Real estate:
Properties occupied by the company 44,010
Policy loans 9,067,089
Cash and short term investments 27,503,955
Other invested assets 52,654
Reinsurance ceded:
Amounts recoverable from reinsurers 1,084,525
Commissions and expense allowances due 4,834,993
Guaranty funds receivable or on deposit 179,263
Life insurance premiums and annuity considerations
deferred and uncollected on in force business 36,207,802
Accident and health premiums due and unpaid 1,114,544
Investment income due and accrued 7,990,750
Due from joint ventures 13,334,115
Other receivables 35,289

Total admitted assets $580,065,418

 12

Liabilities, Capital, Surplus and Other Funds

Aggregate reserve for life policies and contracts $402,360,238

Aggregate reserve for accident and health policies 5,336,283
Policy and contract claims:
Life 11,079,333
Accident and health 37,389,305
Premiums and annuity considerations for life and accident and health
policies and contracts received in advance 4,608,779
Policy and contract liabilities:
Interest maintenance reserve 3,916,427
Commissions to agents due or accrued 5,474,286
Commissions and expense allowances payable on reinsurance assumed 9,668
General expenses due or accrued 3,612,883
Taxes, licenses and fees due or accrued 218,498
Federal and foreign income taxes 272,732
Amounts withheld or retained by company as agent or trustee 287,281
Amounts held for agents’ account 2,969
Remittances and items not allocated 5,920,909
Miscellaneous liabilities:
Asset valuation reserve 2,310,763
Reinsurance in unauthorized companies 214,279
Payable to parent, subsidiaries and affiliates 4,950
Drafts outstanding 14,397
Interest on death claims pending 64,286
Due to joint ventures 4,639,054
Miscellaneous payables 534,140
Current year escheatable items 219,338

Total liabilities $488,490,798

Common capital stock $ 2,500,000

Preferred capital stock 4,250
Gross paid in and contributed surplus 16,216,000
Group life contingency reserve 5,677,707
Unassigned funds (surplus) 67,176,663

Total capital, surplus and other funds $ 91,574,620

Total liabilities, capital, surplus and other funds $580,065,418

 13

B. CONDENSED SUMMARY OF OPERATIONS

1999 2000 2001

Premiums and considerations $156,946,100 $167,762,256 $186,968,703

Investment income 20,887,478 26,842,517 31,691,791
Commissions and reserve adjustments
on reinsurance ceded 36,832,313 30,098,391 30,862,270
Miscellaneous income 7,378,824 7,756,944 7,312,216

Total income $222,044,715 $232,460,108 $256,834,980

Benefit payments $ 68,223,227 $ 67,839,340 $ 71,002,552

Increase in reserves 49,726,945 58,512,013 71,009,919
Commissions 47,441,707 40,277,153 41,167,955
General expenses and taxes 37,449,893 41,799,463 47,071,051
Increase in loading on deferred and
uncollected premium 268,725 982,809 1,974,240

Total deductions $203,110,497 $209,410,778 $232,225,717

Net gain (loss) $ 18,934,218 $ 23,049,330 $ 24,609,263

Federal and foreign income taxes incurred 6,199,212 9,347,992 10,003,365

Net gain (loss) from operations

before net realized capital gains $ 12,735,006 $ 13,701,338 $ 14,605,898
Net realized capital gains (losses) 1,496,072 4,835,425 (1,411,436)

Net income $ 14,231,078 $ 18,536,763 $ 13,194,462

 14

C. CAPITAL AND SURPLUS ACCOUNT

1999 2000 2001

Capital and surplus,
December 31, prior year $56,818,177 $70,586,487 $80,875,101

Net income $14,231,078 $18,536,763 $13,194,462

Change in net unrealized capital
gains (losses) 2,281,711 (11,044,978) (1,483,492)
Change in non-admitted assets
and related items (463,747) (789,924) (2,551,196)
Change in liability for reinsurance in
unauthorized companies (806,535) (677,618) 1,507,495
Change in asset valuation reserve (1,474,197) 4,264,371 (307,093)
Cumulative effect of changes in accounting
principles 0 0 339,343

Net change in capital and surplus $13,768,310 $10,288,614 $10,699,519

Capital and surplus,

December 31, current year $70,586,487 $80,875,101 $91,574,620
 15

6. MARKET CONDUCT ACTIVITIES

The examiner reviewed various elements of the Company’s market conduct activities
affecting policyholders, claimants, and beneficiaries to determine compliance with applicable
statutes and regulations and the operating rules of the Company.

A. Advertising and Sales Activities

The examiner reviewed a sample of the Company’s advertising files and the sales
activities of the agency force including trade practices, solicitation and the replacement of
insurance policies.
Based upon the sample reviewed, no significant findings were noted.

B. Underwriting and Policy Forms

The examiner reviewed a sample of new underwriting files, both issued and declined, and
the applicable policy forms.

Section 3201(b)(1) of the New York Insurance Law states, in part:

“No policy form shall be delivered or issued for delivery in this state unless it has
been filed with and approved by the superintendent as conforming to the
requirements of this chapter and not inconsistent with law. . . . ”

Brochures which contained five unapproved application forms were utilized in the
Company’s mass marketing advertisements for two different products. These applications were
accepted by the Company in the issuance of insurance.
The Company violated Section 3201(b)(1) of the New York Insurance Law by using
unapproved policy application forms.
The review of policy number CGLT-860 entitled “Guaranteed Term Life Insurance Plan”
revealed it has been changed to “Decreasing Term Life Insurance Plan.” The changed policy
was not submitted to the Superintendent for approval.
The Company violated Section 3201(b)(1) of the New York Insurance Law by using an
unapproved policy form.
 16

Section 3207(c) of the New York Insurance Law states, in part:

“ . . . an insurer shall not knowingly issue such a policy or policies for an amount
which, together with the amount of life insurance under any policy or policies then
in force upon the life of such minor, is in excess of the limit of ten thousand dollars
or the limit of fifty per centum (five thousand dollars or the limit of twenty-five per
centum in the case of a minor under the age of four years and six months) of the
amount of life insurance in force upon the life of the person effectuating the
insurance at the date of issue of the policy on the life of such minor, whichever limit
is the greater . . . ”

The review of new issues during the examination period revealed that the Company
issued policies in New York which exceeded the limits of life insurance in force on minors.
The Company violated Section 3207(c) of the New York Insurance Law by issuing
policies on minors in excess of the limits allowed by Law.

C. Treatment of Policyholders
The examiner reviewed a sample of various types of claims, surrenders, changes and
lapses. The examiner also reviewed the various controls involved, checked the accuracy of the
computations and traced the accounting data to the books of account.

Section 3207(e)(1) of the New York Insurance Law states, in part:

“If an insurer shall deliver or issue for delivery in this state any policy of life
insurance on the life of a minor for an amount in excess of the limits prescribed by
subsection (b) or (c) of this section, whichever is applicable, the amount under such
policy which is in excess shall not be valid, or payable as a claim by death . . . ”

The Company paid claims which were in excess of the limits of insurance allowed by
Law.
The Company violated Section 3207(e)(1) of the New York Insurance Law by paying
claims on policies on minors in excess of the limits allowed by Law.
 17

D. Response to Supplement No. 1 to Department Circular Letter No. 19 (2000)

Supplement No. 1 to Circular Letter No. 19 (2000) (the “Supplement”), issued by the
Department on June 22, 2000, notified all licensed life insurers that the Department was
investigating allegations of race-based underwriting of life insurance by its licensees. The
Supplement directed, pursuant to Section 308 of the New York Insurance Law, each domestic
and foreign life insurer to review its past and present underwriting practices regarding race-based
underwriting and to report its findings to the Department, no later than August 15, 2000.
Pursuant to Section 308 of the New York Insurance Law, the Company submitted a
report on September 19, 2001 of the findings of its review of past and present underwriting
practices regarding race-based underwriting made in accordance with the requirements of the
Supplement.
The Company reported that it conducted a review of all relevant documents including a
review of rate charts, mortality tables, agent contracts, compensation schedules, underwriting
and agent manuals, applications, policy form filings, board of directors and committee minutes,
and internal memoranda. In summary, the Company’s findings were that there were no results
from the review that would indicate any degree of race-based rating.
An analysis of the Company’s response to the Supplement and other factors indicated
that the Company’s review of its past and present underwriting practices complied with the
requirements of the Supplement.
 18

7. SUMMARY AND CONCLUSIONS

Following are the violations contained in this report:

Item Description Page No(s).

A The Company violated Section 3201(b)(1) of the New York Insurance 15

Law by using unapproved policy application forms.

B The Company violated Section 3201(b)(1) of the New York Insurance 15

Law by using an unapproved policy form.

C The Company violated Section 3207(c) of the New York Insurance Law 16
by issuing policies on minors in excess of the limits allowed by law.

D The Company violated Section 3207(e)(1) of the New York Insurance 16

Law by paying claims in excess of the limits allowed by law.
 Respectfully submitted,

/s/
Jo’Catena Hargrove
Senior Insurance Examiner

STATE OF NEW YORK )

)SS:
COUNTY OF NEW YORK )

Jo’Catena Hargrove being duly sworn, deposes and says that the foregoing report,

subscribed by her, is true to the best of her knowledge and belief.

/s/
Jo’Catena Hargrove

Subscribed and sworn to before me

this day of